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By Rebekah MintzerPublished: Mar 19, 2014

Doing Business in Russia? Be Careful, Stay Compliant

Martha de Jong-Lantink / FlickrKremlin complex in Moscow

The March 16 vote by residents of the Crimea region of Ukraine to join Russia has prompted some strong international responses. Russian President Vladimir Putin responded by signing a treaty that officially annexes Crimea. In the U.S. and the European Union, Russia’s actions have prompted travel bans and asset freezes on several Russian officials. It’s not only an international political crisis, but also an evolving business crisis for many companies.

As tensions between Russia and the U.S. and EU over Ukraine continue, what should companies with employees in these countries or important business partnerships to protect be doing to stay out of trouble? According to a webinar presented by Fisher & Phillips titled “Russia and Ukraine: What Employers Need to Know and Do During Times of Crisis,” the current political climate means that it’s an appropriate time for those with business interests or employees in Russia to ensure that they are complying properly with the country’s regulations—especially in case the political situation leads to a regulatory crackdown.

Derek Bloom, a Moscow-based partner at Marks & Sokolov who spoke at the webinar, said he believes it would be “prudent” for employers to “assess how to eliminate any vulnerability due to noncompliance with existing Russian regulations.”

A careful look at immigration and employment issues for foreign nationals in Russia is one place for companies to start. The seminar indicated that the environment for companies with non-Russian employees in the country has been a mixed bag of late.

Bloom highlighted some of the improvements made over the last few years for foreigners who want to work in Russia, including exemption from quotas and visa requirements for certain types of foreign workers, like managers of foreign company subsidiaries and people making above a certain amount of money in certain special Russian economic zones. Although this has made it easier for foreigners to come to work in the country, said Bloom, there has also been a “tightening of the enforcement environment” for workers from overseas. This goes against the perception, which Bloom explained is widely held for foreigners in Russia, that although penalties for immigration violations are steep, enforcement tends to be lax.

Bloom cited a recent incident in which a foreign national working in Russia overstayed his visa for a few days and, as a result, got dragged to court, then was banned from reapplying for a visa to enter Russia for five years. Other seemingly minor offenses such as failing to file quarterly papers with Russian authorities could get workers tossed out of the country for several years as well.

“Where we already have a disproportionate penalty for small infractions,” Bloom said, “I think we should only expect that this is going to be more so going forward.”

Although as of the time of the seminar no new additional limitations on foreign workers in Russia had been announced, with more U.S. and EU sanctions likely on the way (and a promise by Russia to push back against such actions), more workers could become subject to sanctions and scrutiny on both sides of the conflict. “We might be looking at the undermining of a lot of effort over the last decade to make it easier for foreigners to work in Russia,” said Bloom.

Outside of the immigration and employment spheres, Bloom suggested that companies with a Russian presence take a good hard look at their political risk insurance and evaluate their current practices to be ready for potential audits by Russian government agencies. Russian companies and wealthy Russian individuals have begun repatriating their assets out of the U.S. and Europe—and American and European companies might consider doing the same for assets in Russia.

Bloom said he doesn’t expect Russia to go as far as to expel or limit the mobility of foreign nationals because of the crisis, but those who think that down the road they might not want to do business in Russia anymore because of the political climate should have a plan for extricating themselves. “I really don’t want to be alarmist by suggesting that, but a review of the worst-case scenario about how do we begin to wind up operations over there is probably something you want to have in your thought process,” Bloom noted.

Overall, he added, those who do business in Russia should be aware that regulations in the country, regardless of the political situation, change frequently and sometimes with little warning. Many legal databases are written in Russian, making the situation even more complex for many foreigners. “It’s very easy to be in compliance one year and find that the next year you’re no longer in compliance,” he said. “Unless you’re actually monitoring the issues, you might find that some rules have changed and you don’t know about it.”

If the Russian government gets a signal to crack down on foreign companies and expats, the situation could become even more problematic and regulatory risks could become much higher. “You should be reviewing your projects in Russia, your employment relationships, your visas, and seeking to eliminate any vulnerability,” Bloom said.